Interim Report New Wave Group AB (publ) Q2 JANUARY – JUNE 2010
The period 1 April – 30 June 2010
“9 % growth in local currencies”
– Sales amounted to SEK 1 065 million, which was 9 % higher than previous year in local currencies and 4 % higher in SEK (SEK 1 023 million).
– Profit before tax amounted to SEK 82.8 million (82.6).
– Profit after tax amounted to SEK 59.4 million (60.5).
– Earnings per share amounted to SEK 0.90 (0.91).
– Cash flow from operating activities amounted to SEK 117 million (373).
– Equity ratio amounted to 42.4 (35.8) %.
– Net debt to equity ratio amounted to 86.7 (129.7) %.
The period 1 January – 30 June 2010
– Sales amounted to SEK 1 981 million, which was 5 % higher then previous year in local currencies but 1 % lower in SEK (SEK 2 002 million).
– Profit before tax amounted to SEK 93.1 million (9.8).
– Profit after tax improved by SEK 59.8 million and amounted to SEK 67.0 million (7.2).
– Earnings per share amounted to SEK 1.01 (0.11).
– Cash flow from operating activities amounted to SEK 183 million (235).
OUTLOOK FOR 2010
The recovery continues and growth during the 2nd quarter was better than expected despite some shortages of goods. It is mainly the Swedish and U.S. markets that have improved. The coming quarters are expected to be relative strong as we anticipate a better stock situation. We expect 2010 to have a higher turnover and a better result than the outcome for 2009.
CEO Comments
Now that we have passed the second quarter, I feel more confident and even more optimistic with regard to the rest of 2010 and ahead. It is a real pleasure to know that we have turned sales around. I am also very pleased with 9% growth excluding currency changes, especially due to the fact that during the second quarter we suffered, to a certain degree, a shortage of goods.
Even gross profit suffered, to a certain degree, because of the shortage of goods. We tried to compensate and reimburse our customers with more expensive alternative goods. Gross profit was also affected negatively due to trading between our group companies’ warehouses, which resulted in higher freight charges.
I am, under the circumstances, satisfied with the result from the second quarter – but it could – and shall be considerably better in the future. We now have a strong balance sheet which exceeds our goals with regard to equity ratio, net debt/equity ratio etc and this is a pleasing situation forward.
Because the shortage of goods will not affect us as much during the third quarter, and probably not at all during the fourth quarter, I believe in a good result for the second half of the year and for 2010 as a whole. My focus as CEO will be to increase the operating margin, maintain organic growth and then expansion. But in the future I will always have one eye on cash flow and the balance sheet.
Unlike last year I have allowed myself a few days rest and recreation – but now it will be full speed again!
Torsten Jansson
SUMMARY OF THE QUARTER APRIL – JUNE
The recovery continues and sales are increasing again. Sales, excluding currency changes, increased by 9%, which is mainly attributable to the Swedish and U.S. markets. Out of our larger brands, in terms of sales, Cutter & Buck sales improved significantly compared to last year, while Craft and Orrefors Kosta Boda were in line with last year’s sales. Both sales channels are growing, but the activity is still higher in retail than in promo.
The gross profit margin was lower than last year’s, partly due to a change in the mix of customers and countries, but also shortages in some promo segments. Gross profit was also affected negatively due to trading between our group companies’ warehouses, which resulted in higher freight charges. External costs are higher due to increased marketing costs, while implemented savings measures have decreased personnel costs which are lower than the previous year.
Profit before tax is in line with last year; however last year includes a one time income related to capital gains of SEK 16.4 million.
The change in working capital is still positive. Cash flow from operating activities amounts to SEK 117 million (373). In the first quarter last year, our actions to reduce stock yielded results. The stock value amounts to SEK 1 579 million and has decreased by SEK 46 million since year-end and by SEK 502 million since 30 June, 2009. With the improved cash flow we have decreased our net debt by another SEK 54 million during the quarter and the rolling twelve months by SEK 730 million. Net debt amounted to SEK 1 622 million (2 352) and the net debt-to-equity ratio to 86.7 (129.7) %.
APRIL – JUNE
Sales
Sales amounted to SEK 1 065 million (1 023), which was 4% better than last year. Exchange rates affected sales negatively by SEK 53 million and sales in local currencies increased by 9%.
Sales in the Promo business area decreased by 2%. The promo market has continued to recover. Mainly the Swedish market is showing signs of improvement, while the development in Europe is still weak. Sports & Leisure increased sales by 9%. Cutter & Buck has grown substantially in both sales channels. Craft sales were in line with last year. Gifts & Home Interior increased sales by 10%. Increased sales during the quarter are mainly attributable to the new establishment of Kosta Boda Art Hotel, which opened in June 2009. Excluding the new establishment, there is a decrease attributable to lower Sagaform promo sales.
Sales in the Nordic region increased by 6%, which is attributable to the Swedish market. Sales in Mid Europe were 8% lower than the previous year and the decrease is mainly attributable to Germany and changes in exchange rates. Southern Europe decreased by 14% and this is mainly attributable to the Italian and Spanish markets, but changes in exchange rates have also affected sales negatively. Sales increased by 23% in North America with a negative currency impact of approximately 4%.
Gross profit
Gross profit margin amounted to 47.1 (49.2) %. The lower margin is partly due to a change in the mix of customers and countries, as well as shortages in some promo stock segments. Due to a shortage of goods we have had increased freight costs, as well as trying to compensate and reimburse our customers with more expensive alternative goods.
Other operating income and other expenses
Other operating income decreased by SEK 16.9 million to SEK 5.1 million (22.0). The decrease is due to last year’s capital gains in connection with sales of Orrefors’ glass collections and real estate of SEK 16.4 million. In addition to this, other operating income is mainly attributable to operating exchange gains and results should be compared to the line “Other expenses” in which the company’s main foreign exchange losses are reported. Other expenses decreased by SEK 7.2 million and amounted to SEK -1.5 million (-8.7). The net of the above items, excluding the mentioned capital gains, amounted to SEK 3.6 million (-3.1) and the improved net profit is mainly due to lower clearance sale losses.
Expenses and depreciation
External costs increased by SEK 10.5 million and amounted to SEK -230.6 million (-220.1), which is attributable to higher sales and marketing costs.
Personnel costs amounted to SEK -171.7 million, which is SEK 11.1 million lower than last year (SEK -182.8 million). The decrease is due to a decrease in the number of employees.
The exchange rates have affected overall costs positively by SEK 18 million.
Depreciation amounted to SEK -15.1 million (-19.0).
Operating margin was 8.3 (9.3) %. The lower margin is attributable to last year’s capital gains of SEK 16.4 million.
Net financial items and taxes
Net financial items amounted to SEK -5.1 million (-12.8). The decrease is mainly due to reduced net debt. The Group’s policy is to have a short duration, which means that changing short-term rates quickly affect the Group’s net interest income.
Tax expenses in absolute terms amounted to SEK -23.4 million (-22.1) and the tax rate to 28.3 (26.8) %.
Result
Profit after tax was in line with previous year – SEK 59.4 million (60.5) – and earnings per share amounted to SEK 0.90 (0.91). Previous year’s result included capital gains of SEK 12.1 million after tax.
JANUARY – JUNE
Sales
Sales amounted to SEK 1 981 million (2 002), which was 1% lower than previous year. Exchange rates affected sales negatively by SEK 119 million, which means that sales excluding exchange rates were 5% better than last year.
The Promo business area sales decreased by 5%. The Promo market has recovered slightly, mainly in Sweden, but is still weak in Europe. Sports & Leisure is in line with previous year. Cutter & Buck and the U.S. market shows signs of increase and a clear improvement compared to last year. Craft sales increased, mainly in Sweden and Norway. Gifts & Home Interior increased sales by 9%. The sales increase is attributable to the new establishment of Kosta Boda Art Hotel, which opened in June 2009. Excluding the new establishment, there is a decrease attributable to lower Orrefors Kosta Boda export sales, mainly in Greece, and Sagaform promo sales.
Sales increased by 4% in the Nordic region, which is mainly attributable to Sweden and Norway. Mid Europe’s sales were 9% lower than previous year’s and the decrease is mainly attributable to Germany and currency changes. Southern Europe decreased by 15%. Mainly the Italian and Spanish markets are weak, but currency changes have affected sales negatively here also. North America increased by 4% despite a negative currency effect of about 10%.
Gross profit
Gross profit margin amounted to 47.4 (47.7) %. Previous year’s gross profit was, however, affected negatively by SEK 25 million (1.2%) due to restructuring costs. The lower margin is due to a change in the mix of customers and countries and more expensive promo substitutes together with higher freight costs since there have been shortages in certain segments of the stock.
Other operating income and other expenses
Other operating income decreased by SEK 34.6 million to SEK 10.2 million (44.8). The decrease is mainly due to, among other things, last years capital gains in connection with sales of Orrefors’ glass collections and real estate of SEK 16.4 million. Remaining other operating incomes are mainly attributable to operating exchange gains and results should be compared to the line “Other expenses” in which the company’s main foreign exchange losses are reported. Other expenses decreased by SEK 17.9 million and amounted to SEK -5.4 million (-23.3). The net of the above items, excluding capital gains, was SEK 4.8 million (5.1).
Expenses and depreciation
External costs decreased by SEK 16.8 million and amounted to SEK -471.0 million (-487.8). The lower costs are due to savings as well as last year’s restructuring costs of SEK 7.1 million.
Personnel costs amounted to SEK -338.7 million, which is SEK 75.3 million lower than last year (SEK -414.0 million). The lower costs are due to a decrease in the number of employees as well as last year’s restructuring costs of SEK 45.1 million.
The exchange rates have affected overall costs positively by SEK 47 million.
Depreciation amounted to SEK -30.0 million (-37.5).
Operating margin was 5.3 (1.9) %, where the improvement is mainly due to savings as well as last year’s restructuring costs.
Net financial items and taxes
Net financial items amounted to SEK -11.7 million (-28.3). The decrease is mainly due to reduced net debt, but also lower interest rates. The Group’s policy is to have a short duration, which means that changing short-term rates quickly affect the Group’s net interest income.
Tax expenses in absolute terms amounted to SEK -26.1 million (-2.6) and the tax rate amounted to 28.0 (26.5) %.
Result
Profit after tax improved by SEK 59.8 million to SEK 67.0 million (7.2) and earnings per share amounted to SEK 1.01 (0.11). Previous year’s results were affected by one-off costs of SEK 44.1 million totally (net of restructuring costs and capital gains).
REPORTING OF BUSINESS AREAS
New Wave Group AB divides its operations into three business areas; Promo, Sports & Leisure and Gifts & Home Interior. The Group follows the areas’ and brand’s sales and profit (EBITDA). The operating segments are based on the Group’s operational management.
Promo
Turnover for the period April-June decreased by 2% to SEK 483 million (490) and the profit (EBITDA) increased by SEK 0.9 million to SEK 77.3 million (76.4). Lower sales are due to currency changes and a continued weak promo market in Southern Europe. The Nordic region, mainly Sweden, is doing better and showing growth. In Mid Europe, Germany had a weak development while other countries in the area are showing signs of a more stable market and is on the same levels as last year, excluding currency rate changes. The improved result is related to cost savings.
Turnover for the period January-June decreased by 5% to SEK 881 million (927) and the profit (EBITDA) decreased by SEK 11.3 million to SEK 91.0 million (102.3). Lower sales are due to currency changes and a continued weak promo market in Southern Europe. In Mid Europe, Germany had a weak development while other countries in the area are showing signs of a more stable market and is on the same levels as last year, excluding currency rate changes. The Nordic region, mainly Sweden and Norway, is doing better and showing growth. The decreased result is related to lower sales volumes.
Sports & Leisure
For the period April-June sales increased by 9% to SEK 404 million (370) and profit (EBITDA) increased by SEK 1.9 million to SEK 30.1 million (28.2). The sales increase is related to the U.S. market and Cutter & Buck. The company is showing strong growth in both business areas, and last year’s cost-cutting measures are giving good results. Craft sales are on the same levels as last year or show a small increase in most countries, while they are down in Denmark. The improved result is related to higher turnover, but with lower gross margins and increased marketing costs.
Turnover for the period January-June was in line with previous year’s, SEK 784 million (785) and profit (EBITDA) increased by SEK 23.6 million to SEK 70.5 million (46.9). The brands Cutter & Buck and Craft are showing growth, but the business area’s other brands have decreased. The improvement in profit is related to better profit margins, primarily in the U.S. market, and last year’s cost-cutting measures. Last year’s results include restructuring costs of SEK 7.1 million.
Gifts & Home Interior
Turnover for the period April-June increased by 10% to SEK 179 million (162) and profit (EBITDA) decreased by SEK 14.2 million to SEK -4.4 million (9.8). The higher turnover is mainly related to the new establishment of Kosta Boda Art Hotel, which opened in June 2009. Excluding the new establishment, sales decreased by 2%, which is attributable to Sagaform and lower promo sales. Orrefors Kosta Boda are increasing sales in Sweden, but decreasing export sales. Last year’s result includes capital gains of SEK 16.4 million.
Turnover for the period January-June increased by 9% to SEK 316 million (290) and profit (EBITDA) increased by SEK 46.9 million to SEK -26.7 million (-73.6). The higher turnover is mainly related to the new establishment of Kosta Boda Art Hotel which opened in June 2009. Excluding the new establishment, sales decreased 3%. Orrefors Kosta Boda sales are increasing in Sweden, but decreasing on the export market, mainly in Greece. Sagaform retail sales are increasing, but in similarity to the promo business area, has weaker sales in sales channel promo. The period’s result increased by SEK 46.9 million, however, last year’s result was affected by one-off costs of SEK 53.7 million net (net of restructuring costs and capital gains). EBITDA, excluding net one-off costs, decreased, which is mainly due to lower Orrefors Kosta Boda export sales.
GEOGRAPHIC ALLOCATION
Table of turnover in the regions Nordic countries, Mid Europe, Southern Europe, North American and Other countries is reported on page 15.
During the period April-June sales increased by 6% in the Nordic countries, with mainly Sweden showing a better development and growth. Mid Europe was negatively affected by Germany and currency exchange rates. Other countries in the area had a small increase or are in par with previous year. Southern Europe has had a weaker development, mainly Italy and Spain, and decreased by 14%. A major part of the sales are in the promo business area and currency exchange rates have also had a negative affect in this region. In North America, sales increased by 23%. Sales in local currency increased by 28%.
During the period January-June sales in the Nordic countries increased by 4%. The increase is mainly related to Sweden and Norway. Beside Germany, the other Mid European countries have a small increase or are in par with last year, but were negatively affected by currency exchange rates. Southern Europe has had a weaker development, mainly Italy and Spain, and decreased by 15%. Currency exchange rates have had a negative effect in this region too. In North America, sales increased by 4%. Sales in local currency increased by about 15%.
CAPITAL TIED UP
During the period April-June, capital tied up in stock has decreased by SEK 8 million and by SEK 502 million since June 30, 2009. Total stock value amounted to SEK 1 579 million (2 081).
2010-06 2009-06
Raw materials 71.5 75.1
Products in progress 34.5 36.9
Goods in transit 88.6 33.6
Merchandise on stock 1 384.1 1 935.6
Total 1 578.7 2 081.2
Efforts to reduce capital tied up in stock have also led to many obsolete items being sold out, which means that the provision for obsolescence has decreased. Provision for obsolescence as of June 30, 2010 amounted to SEK 61 million (88) and is 4.4 (4.5) % of the reported merchandise on stock. The increased delivery times have unfortunately resulted in a temporary shortage of goods for resale in some segments.
The stock turnover rate continues to improve and amounted to 1.3 compared to last year’s 1.0.
Accounts receivable decreased by SEK 10 million to SEK 779 million (789), reflecting improved credit periods and currency fluctuations.
The Group continues its work and its priority to reduce working capital. Efforts will continue to concentrate on logistics and assortment.
INVESTMENTS, FINANCING AND LIQUIDITY
During the period April-June consolidated cash flow from operations amounted to SEK 117 million (373). Efforts to reduce capital tied up continue to show results and the Group decreased its working capital in the period by SEK 35 million. Last year’s strong cash flow is attributable to a massive decrease in working capital, mainly the stock which decreased by SEK 199 million. The Group’s net cash investments totalled SEK -6.7 million (-0.3).
Compared with the same period last year, net debt decreased by SEK 730 million and amounted to SEK 1 622 million where currency changes have reduced debt by SEK 51 million. Net debt relative to equity decreased and amounted to 86.7 (129.7) %.
The equity ratio improved by 6.6 percentages and amounted to 42.4 (35.8) %, which is a result of reduced net debt.
The Group had SEK 2 825 million in credit lines as of June 30, 2010 and the credit agreement extends through to April 2011. The interest rate is based on the respective currency’s base rate and fixed margin. The Group’s policy is to have a short duration, which means that changing short-term rates quickly reflect in the Group’s net interest income.
New Wave Group’s financing agreement includes a commitment (covenant) regarding the equity ratio and that the total credit ceiling of SEK 2 825 million as of June 30, 2010, shall be amortised down to SEK 2 475 million as of April 30, 2011. The Group’s equity ratio amounts to 42.4% and the net debt amounts to SEK 1 622 million as of June 30, 2010.
The Group has begun work on a new funding agreement.
PERSONNEL AND ORGANISATION
In connection with the cost saving measures taken within the group, the number of full-time employees decreased by 211 as per June 30, 2010 to 2 159 (2 370) of whom 48% were female and 52% were male. Out of the total number of employees 557 (653) work in production. The production that exists within New Wave Group is attributable to Orrefors Kosta Boda, Seger, Dahetra, Toppoint and Cutter & Buck (embroidery).
SUBSCRIPTION OPTIONS IN NEW WAVE GROUP AB
New Wave Group has three outstanding subscription option programs.
In June 2009 a program addressed to senior executives was launched. The option program consists of 1 000 000 stock options and runs until June 2012 with an exercise price of SEK 26.10. The options were subscribed with a premium of SEK 0.21 per option.
In July 2008 two programs were launched, one addressing senior executives and one addressing the Board. The option program for senior executives consists of 1 800 000 stock options and runs until June 2011 with an exercise price of SEK 64.05. The options were subscribed with a premium of SEK 1.11 per option. The option program for the Board consists of 200 000 options and runs until June 2013 with an exercise price of SEK 85.40. The options were subscribed with a premium of SEK 0.88 per option.
Premiums received in all above mentioned programs are based on market value.
TRANSACTIONS WITH RELATED PARTIES
There are leasing agreements with associated companies. The parent company has purchased consulting services from a member of the Board. All transactions are on market terms.
OUTLOOK FOR 2010
The recovery continues and growth during the 2nd quarter was better than expected despite some shortages of goods. It is mainly the Swedish and U.S. markets that have improved. The coming quarters are expected to be relative strong as we anticipate a better stock situation. We expect 2010 to have a higher turnover and a better result than the outcome for 2009.
PARENT COMPANY
Turnover during the period January-June amounted to SEK 81.9 million (88.2). Profit after financial items was SEK 50.5 million (23.7). Net borrowings amounted to SEK 1 613 million (2 286), of which SEK 1 369 million (1 870) are related to financing of subsidiaries. Net investments amounted to SEK 65.9 million (-156.3). Total assets amounted to SEK 3 439 (3 794) and shareholder’s equity to SEK 1 251 (1 076) million.
RISKS AND RISK CONTROL
New Wave is, with its international operations, regularly exposed to various financial risks. The financial risks are currency, borrowing and interest rate risks, as well as liquidity and credit risks. To minimise these risks impact on earnings, the Group has established a financial policy. For a more detailed description of the Group’s risk management refer to the Annual Report 2009; www.nwg.se.
The Group’s policy is to have a short duration, which means that changing short-term rates quickly reflect in the Group’s net interest income.
The Group’s reported risks are deemed to be essentially unchanged.
ACCOUNTING PRINCIPLES
This report has been prepared according to IAS 34 Interim Report and the Annual Report Law. Report regarding Total result has been prepared according to IAS 1 (R) and was applied for the first time September 30, 2009. The interim report for the parent company has been prepared according to Annual Report Law as well as the Swedish Financial Accounting Standards Council’s standards RFR 2:2 – Accounting for legal entity. Applied accounting principles are in accordance with the Annual Report for 2009.
CALENDAR
• 12th November, 2010
Interim Report for third quarter
• 10th February, 2011
Year End Report 2010
• 21st April, 2010
Interim Report for first quarter
The Board and the CEO assure that the Interim Report gives a true and fair view of the company and the Group’s operations, position and result and describes the material risks and uncertainties that the company and the Group face.
Gothenburg, August 12, 2010
New Wave Group AB (publ)
Anders Dahlvig Christina Bellander Göran Härstedt
Chairman of the Board Member of the Board Member of the Board
Helle Kruse Nielsen Mats Årjes Torsten Jansson
Member of the Board Member of the Board CEO
The information in this report is that which New Wave Group is required to disclose under the Securities Exchange and Clearing Operations Act and/or the Financial Instruments Trading Act. Released for publication August 12, 2010 at 7 am (CET).
FOR FURTHER INFORMATION PLEASE CONTACT:
CEO Torsten Jansson
Phone: +46 31 712 89 01
E-mail: torsten.jansson@nwg.se
CFO Lars Jönsson
Phone: +46 31 712 89 12
E-mail: lars.jonsson@nwg.se